Health, Accident, and Retirement Benefits

Health Insurance Types of insurance Traditional health insurance plans Health maintenance organizations (HMO) Traditional scheme Point of service plan (POS) Preferred provider organization (PPO) State health insurance exchanges Key part of Affordable Care Act (ACA)

ACA Health Insurance Requirements Requires large employers to provide health insurance Applicable large employers (ALE) 50 full time employees or more Full-time employee definition: employed on average at least 30 hours per week Seasonal workers are taken into account in determining the number of full-time employees Determined each year by employer based on current number of employees Employer shared responsibility (ESR) Provide affordable health insurance to full-time employees that provides minimum essential coverage for at least minimum value Method determining ESR: Monthly measurement or Look-back measurement

ACA Health Insurance Requirements ACA includes Patient Protection and Affordable Care Act Health Care and Education Reconciliation Act Dependent children up to Age 26 must be covered Plan cannot limit coverage if dependent is married Annual Reporting: Form 1095-C Generally given to employee by January 31 Extended in 2016 to March 2, 2017. Filed with IRS by Feb 28 (March 31 if electronically filed)

ACA Health Insurance Requirements Small employer HRA option 21st Century Cures Act Small employers who do not offer health insurance to their employees Offer a qualified small employer health reimbursement arrangement (QSEHRA) QSEHRA Provided on the same terms to all eligible employees Funded solely by employer, no salary reduction contribution allowed Pays single employees up to $4,950 and families up to $10,000 annually for medical expenses Employers give annual notice at least 90 days before the start of the year or employee’s initial eligibility date W-2 Reporting - value of benefits: Box 12, Code FF

ACA Reporting Forms Form 1094-C Form 1095-C Form 8809 Form 1094-B Transmittal of Employer-Provided health Insurance Offer and Coverage Information Returns Form 1095-C Employer-Provided health Insurance Offer and Coverage Form 8809 Application for Extension of Time to File Information Returns Form 1094-B Transmittal of Health Coverage Information Returns Form 1095-B Health Coverage

Tax Treatments: Contribution / Benefits Employer-paid premiums Exclude from income Employee contributions Under §125 plans Exclude from income as allowed under plan Without §125 plans Include in income Benefits received by employee Either directly or indirectly are excluded from income

Tax Treatments: Contribution / Benefits Life Partner contributions / benefits Includes non-spouse cohabitant and domestic partner Not excluded from income Same-sex spouse contributions / benefits Does not include registered domestic partnerships and civil unions Excludable from income W-2 Reporting: Employer-sponsored health insurance: Box 12, Code DD

Medical Savings Accounts (MSA) Health Insurance Portability and Accountability Act of 1996 Used by companies with 50 or less employees Employees must be covered by a high deductible health insurance plan Annual individual deductible: $2,250 - $3,350 Annual family deductible: $4,500 - $6,750 Maximum individual out-of-pocket expense: $4,500 Maximum family out-of-pocket expense: $8,250 Contributions can be made by employee or employer; not both Limited to 65% of plan deductible by individuals Limited to 75% of plan deductible by families

Medical Savings Accounts (MSA) Tax treatment: Employee contributions: deductible from income on personal tax return Employer contributions: excludable from income Must be established outside of a cafeteria plan, although can work in conjunction with a high deductible plan (HDHP) inside of a cafeteria plan W-2 Reporting: Employee contributions: Boxes 1, 3, 5 Employer contributions: Box 12, Code R

COBRA Health Insurance Continuation Consolidated Omnibus Budget Reconciliation Act of 1985 Requires health plan sponsors to provide employees and their beneficiaries with the opportunity to elect continued group health coverage for a given time period should their coverage be lost due to a qualifying event Time period is generally 18 or 36 months depending on qualifying event

Health Reimbursement Arrangements Paid for solely by employer Reimburses expenses incurred for medical expenses Provides reimbursement up to a maximum dollar amount Reimbursements are excluded from the employees gross income

Health Savings Accounts (HSA) Employee must have a high deductible health plan (HDHP) Annual deductible: Individual = $1,300; Family = $2,600 Out-of-pocket expenses: Individual = $6,550; Family = $13,100 Contributions: Can be made by both employee and employer Can be part of cafeteria plan Annual Limits: Individual = $3,400; Family = $6,750 Catch-up option available for employees 55 or over $1,000 maximum per year Distributions are tax free when used for medical expenses W-2 Reporting - employee / employer contributions: Box 12, Code W

Family and Medical Leave Act (FMLA) Applies to private sector employers with 50 or more employees Allows 12 weeks of unpaid leave in any 12-month period Newborn or newly adopted child Care for seriously ill immediate family member Qualifying exigency (need) for immediate family member called to active duty Allows 26 weeks of unpaid leave in any 12-month period Care for military service members with serious injury or illness

Family and Medical Leave Act (FMLA) Eligibility requirements Employed at least 12 months Worked at least 1250 hours within previous 12 months Hours worked follows FLSA rules Leave can be taken intermittently or consecutively Employer can require: Medical certification by a health provider Medical certification of a qualifying exigency Health benefits continue during leave Employee must continue to pay their portion of benefits Prepaid, paid during leave or paid after at employee’s discretion

Sick Pay Under a Separate Plan Short-term or long-term disability payments Employee provides Form W-4S to have federal income tax withheld Tax Treatment: Payments during first 6 months: Subject to social security, Medicare, and FUTA taxes No federal income tax withheld unless Form W-4S received Payments after first 6 months: Not subject to social security, Medicare, and FUTA taxes W-2 reporting- nontaxable amounts attributable to employee contributions to premiums: Box 12, Code J

Cafeteria Plans Qualified benefits covered IRC §125 Accident and health insurance plans Dependent care assistance plans Group-term life insurance Qualified adoption assistance COBRA continuation premiums Accidental death and dismemberment insurance Long-term and short-term disability § 401(k) plans Health Savings Account contributions

Cafeteria Plans Funded Flex dollars / flex credits Salary reductions After-tax employee contributions can apply on specific coverages Excluded from employee income Benefit Elections Open enrollment First 30 days of employment Qualifying event occurrence

Cafeteria Plans Nondiscrimination Testing Safe harbor Eligibility test Looks at employee groups Contributions and benefits test Looks at benefit availability and benefit selections Special health benefits test Tests are performed at year end Safe harbor Requires that a cafeteria plan satisfy minimum eligibility and participation requirements and minimum employer contribution requirements.

Flexible Spending Arrangements (FSA) a/k/a flexible spending accounts or reimbursement accounts Employee pre-tax contributions Contribution limit: $2,600 Reimbursement for health care, dependent care, etc. Unused amount forfeited at the end of the year Employee has 2 ½ months in new year to submit prior year expenses Employer can amend plan to allow balances of $500 or less to carry over to the next plan year Employer can amend plan to allow qualified reservist deductions (QRD)

IRC §401(a) Qualified pension plan Profit-sharing plan Provides a benefit that is determinable when the employee retires Payable over a period of years Employers contributions are not based on profits Can be either a defined benefit (DB) or a defined contributions (DC) plan Profit-sharing plan Allows employees to participate in company profits as a retirement planning vehicle with employer contributions based on a formula Defined contribution plan only

IRC §401(a) Annual compensation limit: $270,000 Annual contribution limit: lesser of $54,000 or 100% of employees annual compensation Catch-up contribution: Employees age 50 or more Annual limit: $6,000 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding

IRC §401(k) Cash or Deferred Arrangement (CODA) Nondiscrimination Testing Actual deferral percentage (ADP) testing Actual contribution percentage (ACP) testing Automatic salary reductions without an employee election is allowed Qualified Automatic Contribution Arrangement (QACA) Meets safe harbor provisions for ADP and ACP testing Eligible Automatic Contribution Arrangement (EACA) Does not meet safe harbor provisions for ADP And ACP testing

IRC §401(k) ROTH option available Post tax deduction Catch-up contribution available for ROTH Pre-tax contributions and Post-tax contributions cannot exceed limits W-2 Reporting – salary reduction: Box 12, Code D W-2 Reporting – ROTH: Box 12, Code AA

IRC §401(k) Annual compensation limit: $270,000 Annual contribution limit: $18,000 Catch-up contribution: Employees age 50 or more Annual limit: $6,000 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding

IRC §403(b) Tax-sheltered annuities for public schools, tax-exempt charitable, religious, and educational organizations Automatic salary reductions without an employee election is allowed Special provision for employees with 15 years of service $3,000 in additional contributions in any year $15,000 reduced by any amounts contributed under this special provision in earlier years ($5,000 x the number of years of service ) – total elective deferral from previous years

IRC §403(b) ROTH option available Post tax deduction Catch-up contribution available for ROTH Pre-tax contributions and Post-tax contributions cannot exceed limits W-2 Reporting – salary reduction: Box 12, Code E W-2 Reporting – ROTH: Box 12, Code BB

IRC §403(b) Annual compensation limit: $270,000 Annual contribution limit: $18,000 Catch-up contribution: Employees age 50 or more Annual limit: $6,000 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding

IRC §457(b) Deferred compensation plans for the public section and tax-exempt groups IRC allows for plans to be provided in a discriminatory manner Special rule when near retirement For the last 3 years before the participant reaches the plan’s normal retirement age, the maximum annual deferral limit is the lesser of 2 times the amount determined by the participants annual deferral limit or the current year deferral limit plus the limits from previous years reduced by the participant’s deferrals for those years

IRC §457(b) ROTH option available Post tax deduction Catch-up contribution available for ROTH Pre-tax contributions and Post-tax contributions cannot exceed limits W-2 Reporting – salary reduction: Box 12, Code G W-2 Reporting – ROTH: Box 12, Code EE

IRC §457(b) Annual compensation limit: $270,000 Annual contribution limit: $18,000 Catch-up contribution: Employees age 50 or more Annual limit: $6,000 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding

IRC §501(c)(D) Employee-funded plans Annual contribution limit: lesser of $7,000 or 25% of employees annual compensation Employee contributions are reduced by other CODA maintained by the employer W-2 Reporting – salary reduction: Box 12, Code H

Individual Retirement Accounts (IRA) Employer-sponsored plans Annual contribution limit: $5,500 Catch-up contribution: Employees age 50 or more Annual limit: $1,000 Employee contributions and compensation limits are reduced by other CODA maintained by the employer Contributions allowed up to amount employer believes the employee can deduct on their personal tax return ROTH option available

IRC §408(k) Simplified Employee Pensions (SEP) For employers who do not have the means to sponsor or administer a qualified pension or profit-sharing plan No ROTH option available W-2 Reporting – salary reduction: Box 12, Code F

IRC §408(k) Annual compensation limit: $270,000 Annual contribution limit: $18,000 Catch-up contribution: Employees age 50 or more Annual limit: $6,000 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding

Simple Plans Savings Incentive Match Plan for Employees of Small Employers Either an IRA or part of a §401(k) CODA Annual compensation limit: $270,000 Annual contribution limit: $12,500 Tax Treatment: Subject to social security, Medicare, and FUTA Taxes Not subject to federal income tax withholding W-2 Reporting – salary reduction: CODA: Box 12, Code D IRA: Box 12, Code S

Employee Stock Ownership Plans ESOP is a stock bonus plan or combined stock bonus and money purchase plan designed to invest primarily in the employer’s stock. Must meet the general requirements under IRC §401(a) regarding participation, vesting, nondiscrimination, etc. Employer contributions not considered wages as long as the annual compensation limits or contribution limits are not exceeded (refer to IRC §401(a)) Nonleveraged ESOP: Buys stock either with funds provided by employer Leveraged ESOP: borrowed funds

IRC §409A Nonqualified deferred compensation plans (NQDC) Does not meet IRC §401(a) requirements for deferred compensation W-2 reporting requirements are on hold for Box 12, Code Y and Code Z Either funded (deferral is protected by Trust money) or unfunded (promise of monies) Amount deferred tax treatment: Not subject to federal income tax withholding at time of deferral Subject to social security, Medicare, and FUTA taxes Amount received from distribution: Subject to federal income tax withholding at time of distribution

Taxation Summary

DO YOU KNOW??? What are the advantages of pre-tax benefit contributions? What is the annual compensation limit for IRC §401(k)? What are the characteristics of a defined contribution plan? Name 3 examples of a qualifying event that allows an employee to change their elections in a cafeteria plan Which IRC section code applies for deferred compensation for public schools?